Treasury bonds and notes, more than half of the $42.4 billion of U.S. long-term debt-public and private-held by foreigners.

The volume of these official holdings is determined mainly by balance-of-payment factors, independent of the ability of U.S. financial markets to attract foreign capital through the operation of normal market forces. Only to a small extent, such as investments of official pension funds and some of the more recent investments of the Middle East oil exporting countries, do official funds move primarily in response to market criteria.

Another important special factor affecting the survey totals was foreign holdings of U.S. corporate bonds and other long-term debt resulting from the U.S. Government capital control and restraint programs during the period from the mid-1960's to the early 1970's. Under these programs, U.S. firms were encouraged to go to foreign capital markets to raise the necessary funds to finance their direct investments abroad in lieu of moving funds from the United States to foreign countries. As a result, U.S. firms placed a large volume of both straight and convertible bonds abroad, so-called Euro-bond issues, and additionally raised funds through direct loans from foreign institutions. When this borrowing was undertaken by U.S.-incorporated entities, such as finance affiliates incorporated in Delaware, the result was an increase of foreign portfolio holdings of U.S. bonds and other long-term debt.

It should also be noted that the reporting date of the benchmark survey fell early in the period of the large accumulations of funds by the oil producing countries, before these countries had had a full opportunity to allocate their holdings across a balanced and diversified portfolio. Consequently, the end-1974 holdings of these countries in the United States were heavily concentrated in short-term assets, which are not included in the survey. In 1975 and early 1976 the oil producing countries moved substantial amounts of their U.S. holdings into longer-term assets.

Finally, the reporting date of the survey occurred at the end of a period of falling U.S. stock prices; the general lack of buyer interest during this time was shared by foreigners. In 1975 and early 1976 there was a strong surge in foreign purchases of U.S. stocks, which, together with the sharp increase in the market value of U.S. stocks, considerably increased foreign holdings of U.S. stocks, both in absolute terms and as a proportion of the total foreign portfolio of U.S. assets (see page 16).

Foreign Holdings of U.S. Stocks

The $25 billion foreign holdings of U.S. stocks were widely diversified by U.S. industry, but heavily concentrated by the recorded country of residence of the foreign holder.

The recorded country distribution, however, can be misleading, because many foreign holders, like similar domestic institutions, act as custodians or nominees for third persons. Holdings by such persons make it impossible to identify in many cases the true country of residence and the types of beneficial owners of U.S.

securities. In order to obtain an idea of the possible magnitude of such holdings, a category "banks, brokers and nominees' was included in the questionnaire, under the assumption that foreign banks and brokers are, for the most part, holding U.S. securities for other persons. The validity of this assumption varies from country to country; however, it is probably safe to say that the totals shown for "banks, brokers and nominees' represent the maximum amounts held for third person accounts.

In many cases, of course, the immediate foreign holder is also the beneficial owner; and in other instances the nominee and the actual owner are residents

of the same country. However, there remains an unknown but presumably important volume of foreign holdings where the final beneficial owners are residents of countries different from that of the nominee holders. This particularly applies to owners of securities held through Swiss holders of record. 1,2

Of the recorded value of U.S. stocks held abroad as of December 31, 1974 (including official holders) of $24.7 billion at market value, all but $1 billion was recorded as held in the names of private persons and institutions3 (see Table 2 and 3).

There were some private holders of U.S. stocks in virtually every country of the world (see Appendix Table A-2), but a dozen countries accounted for 90 percent of foreign private holdings, and five countries Switzerland, Canada, the United Kingdom, Netherlands and France-accounted for over three-fourths of the total (see Appendix Tables A-2 and A-3.)

The category "banks, brokers and nominees' accounted for over half the world total of private holdings; for the five largest countries mentioned above the ratio was nearly 62 percent. Switzerland alone accounted for over $6 billion of these holdings, and they represented nearly 88 percent of recorded Swiss holdings.

In the case of countries other than Switzerland where holdings of U.S. stocks by "banks, brokers and nominees' were significant-United Kingdom, France, Germany, Netherlands, Canada and Japan-a higher percentage of the holdings is believed to be on behalf of residents of the country for which they are reported.4 Holdings of U.S. stocks by banks, brokers and nominees in the United Kingdom of $1.8 billion, for instance, were probably nearly all for the account of residents of that country.

Individuals residing abroad accounted for about 19 percent of all private holdings; institutional investors, such as investment companies, insurance companies, pension funds, and other employee benefit funds or trusts, held another 15 percent; and about 10 percent was reported as held by "other business firms."

U.S. nationals residing abroad accounted for $2.2 billion or nearly 10 percent of the total of all non-official holdings. Countries of residence of Americans accounting for significant amounts of holdings of U.S. stocks were, in order of magnitude: United Kingdom, Switzerland, Canada, France and Italy. The totals attributed to Americans residing abroad are the minimum amounts actually held by these persons, since foreign nominees undoubtedly also hold securities on behalf of U.S. nationals.

Direct holdings of foreign nationals residing abroad also accounted for $2.2 billion. Ninety percent of this was held by individuals in thirteen countries and more than one-half was held in Canada, the United Kingdom, Switzerland and Germany. Generally, individuals in the developing countries did not hold U.S. stocks directly in any significant amount. Again, it is probable that they held large additional amounts through foreign nominees, especially Swiss nominees.

Holdings of U.S. stocks by investment and insurance companies, pension funds, and other employee benefit funds or trusts, amounted to $3.7 billion. Eight countries accounted for about ninety percent of the total, and three countries, the Netherlands, Canada and the United Kingdom, accounted for about two-thirds. While separate amounts for the various groups covered in this category were not available, it is believed that the holdings were concentrated in investment companies. It is of

4 This conclusion is also supported by withholding tax data of the Internal Revenue Service.

5 This percentage is especially affected by the problem of classifying petroleum companies, referred to on page If all companies

interest that the three countries mentioned above as principal holders are important locations for such investment companies. Switzerland, the Netherlands Antilles, Luxembourg, Panama and Bermuda also are wellknown locations for such institutional investors.

"Other business firms" held U.S. stocks in the amount of $2.5 billion. Ninety percent of these stocks were held by companies in twelve countries, and one-half by Dutch and Canadian investors.

Distribution by Industry

Private foreign holdings of U.S. stocks were distributed among a broad range of U.S. industries (see Table 3 and Appendix Tables A-7 and A-8). Some foreign investment was found in 68 of the 74 industries used in the survey for identification purposes (the two-digit SIC Enterprise Code).

Stocks of manufacturing companies accounted for 60 percent of the total. The extent to which foreign investors prefer manufacturing stocks is evident from the data in Appendix Table A-16: foreigners held 4.4 percent of the stock of manufacturing companies reporting in the survey, compared to 2.8 percent in all other industries.

Other major recipients of foreign investment were finance, insurance, and real estate (14 percent of foreignheld stocks); and transportation and public utilities (11 percent of foreign-held stocks). Mining stocks attracted 9 percent and the remaining investment was scattered among other industrial categories.

Manufacturing. Among individual manufacturing industries, machinery (excluding electrical), and chemical and allied products, attracted the largest volumes of foreign investment. Each of these categories accounted for about 20 percent of the total foreign holdings of manufacturing stocks. They were followed by petroleum refining (petroleum and coal products) and by electrical and electronic equipment which accounted for 14 percent and 11 percent, respectively, of the manufacturing total.

The six industries having the lowest foreign investment (furniture and fixtures, leather and leather products, textile mill products, apparel and other textile products, printing and publishing, and lumber and wood products) attracted together only $296 million of foreign investment, about 2 percent of the manufacturing total. The remaining ten manufacturing industries included some which were technology-oriented, such as transportation equipment, instruments and related products, and fabricated metal products, as well as consumer-product industries such as food and food products, tobacco manufactures, and rubber and miscellaneous plastics products.

The data show that foreign investment is heavy in industries which are technology oriented. Industries that can be related to technological development (machinery, electrical and electronic equipment, chemicals and allied

classified as "oil and gas extraction" were assigned to "manufacturing: petroleum and coal products," the percentage of the remaining mining investment would be reduced to 3.4 percent and manufacturing would be raised to more than 65 percent.

products, petroleum and coal products, instruments and related products, and transportation equipment) accounted for more than 77 percent of total foreign portfolio investment in stocks of manufacturing companies.

The second-largest investment by private foreign holders of U.S. stocks was in the finance, insurance and real estate industry and amounted to $3.2 billion, or 14 percent of total foreign holdings.

The largest part of this group represented investment in banking firms, which totaled $1.1 billion6. The finance group also includes mutual investment funds. Foreign holdings of shares of these funds amounted to $0.8 billion and represented a major part of the group total. Foreign investors holding these shares in fact acquire an indirect interest in shares and other investments held by these mutual investment funds. The advantage of diversification offered through mutual funds is of particular

interest to foreign holders who may not be able to respond quickly to market changes, or to follow market trends readily.

Transportation and public utilities stocks with $2.6 billion, or 11 percent of the total, are among the industries that Foreigners historically have favored. Their interest centered on the electric and gas utilities, and on communication companies, while investment in railroads ran a poor third in this group.

Mining companies are also a major focus for foreign investment. Within this group, stocks of oil and gas extraction companies accounted for about three-quarters of the total.

Distribution by Degree of Ownership:

Data on foreign investment in U.S. voting stocks by percentage of each company's stock held abroad are shown in Table 4 and in Appendix Tables A-12, A-13,

and A-14. The tables present, by major industry and by size of company, the percentage of foreign ownership. There were 327 companies in which the total private foreign holdings exceeded 10 percent of their outstanding voting stock; portfolio investment in the stock of these companies amounted to $6.6 billion. Of this amount, $5.0 billion was placed in 25 companies, each of which had assets in excess of $1 billion. (It must be kept in mind that the stocks in these firms are held by large numbers of independent foreign investors, widely scattered around the world.) An additional 535 companies fell in the 5 to 10 percent range of foreign ownership, accounting for $6.6 billion of the portfolio investment in U.S. stocks; the remaining $10.7 billion was invested in 4,424 companies in which foreign ownership was less than 5 percent.

Foreign ownership as a percentage of stock outstanding was greater in larger companies, as shown by the data in Appendix Table A-15. Foreign ownership in the largest 200 companies averaged 4.1 percent; for all other companies it amounted to 2.8 percent. (Note that this table differs from Table A-16 in that it includes, in total stock outstanding, companies in which there was no foreign holding of voting stock.)

In part, the reason for this may be that stocks of smaller companies are less well-known abroad, less readily marketable, and more often likely to be closely held. It is also possible that a disproportionate amount of foreign holdings in stocks of smaller companies is owned by U.S. nationals residing abroad, and that therefore foreign investors' preferences for the stocks of large companies is even higher than the aggregates shown in Table A-15 indicate.

The degree of foreign ownership by major industry group is shown in Appendix Table A-16. There seems to be no ready explanation for the industry differences shown. In part, they may merely reflect the variation by size of company just mentioned, but a more detailed ex

amination of the data is clearly needed to arrive at valid conclusions as to why foreigners own more of one industry, or of one type of company, than another.

Foreign Holdings of U.S. Debt

About $16 billion worth of long-term U.S. debt obligations were held by private foreign holders (see Tables 5 and 6 and Appendix Table A-4). Most of these foreign holdings, $14.7 billion or 92 percent, consisted of private corporate debt, including some issues of state and municipal governments (Appendix Table A-9). More than 87 percent of these foreign holdings were concentrated in ten countries, and four countries, the United Kingdom, Switzerland, Germany and Canada held 70 percent of the total.

Most of these private foreign holdings of U.S. debt obligations are directly related to the U.S. capital control and capital restraint programs discussed earlier. As described in the methodology (Appendix B), no firm data were available on the present holders of those securities. Distribution by Industry

An examination of the industry distribution of U.S. debt held by private foreigners shows that about half of the total was accounted for by manufacturing companies. Manufacturing companies, being the major U.S. direct investors abroad, were also the principal group to raise funds in foreign markets to finance their investments while the U.S. capital controls were in effect. Thus, foreign investors are more familiar with them than with U.S. firms that do not operate overseas.

Funds borrowed by U.S. companies in other industry segments were concentrated in transportation and public utilities, mining (again, $1.5 billion out of a total of $2.1 billion was debt of the "oil and gas extraction" sector), and in finance, insurance and real estate. While the same